Accounts Receivable Financing and Factoring
If you are contemplating opening your own small to medium size business, you cannot just hang out your “open for business” sign on your door one day and expect your profits to grow. There are many factors involved in running a business such as accounts receivable financing, asset-based lending, factoring, and purchase order financing.
Choosing the best Factoring companies to work with will definitely add value to your business. It is good to take some educational courses before setting you your small business to learn the ins and outs of how a company runs successfully. For instance, just the word factoring can leave you the business owner scratching your head wondering what this has to do with you. Listed is the first item that has to do with profits from your company,
A company may use this type of asset-financing arrangement where it uses its receivables. A financing agreement is put into effect and used as collateral. The money is owed by customers who have not yet paid what is owed. Depending on how old a client’s account depends on how much the company will receive. The older the account, the less is received. Accounts receivable financing frees up the capital in business through a transfer of default risk accounts to the funding company. Your business can thus focus more on collecting receivables for current business activities. This action brings into play the issue of factoring.
If your business needs to build up some cash flow, factoring is one way to accomplish this in a quick and flexible way. Factoring is different than any business loan or line of credit you may obtain to get extra cash flowing. When you have older accounts sitting unpaid, you can sell these accounts to a third party financial institution, when your company cannot wait for payment from your customers. Factoring is an excellent way to get the cash for your business quickly.
Companies in the business of factoring purchase your older accounts and pay you in 24 hours or less. Once this third party collects payment from your customers, you get paid the reserve balances of the invoices. There is a small fee from third party collections for assuming the collection risk. Funds are unrestricted and better than a traditional bank loan. Factoring strictly based upon the customer’s credit and financial history does not affect your company’s net worth.
Factoring is an age-old recipe to help your business grow and prosper. Factoring is a great way to accumulate more cash flow when you find you have some limitations going through the traditional banking systems.
All businesses factor at one time or another. Even if your business is just you, you have the ability to factor. Large companies and corporations factor all the time. Factoring spans all industries and venues allowing these companies to act quicker in financial decision making and realize faster growth.